Cargo announcement

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CARGO CARRIERS LIMITED (Registration Number 1959/003254/06) Share code: CRG ISIN: ZAE000001764 ("Cargo Carriers" or "the Company" or “the Group”)

EMPLOYEE SHARE PARTICIPATION PLAN


1. INTRODUCTION

Shareholders of the Company are advised that Cargo Carriers has entered into an agreement whichprovides for the implementation of an employee share participation transaction through the creation and funding of a special purpose vehicle, EmployeeCo (Pty) Ltd (“EmployeeCo”) through which eligible employees of the Group (“EmployeeCo Participants”) will be able to collectively acquire an indirect 5% shareholding in Cargo Carriers ("EmployeeCo Transaction").

2. THE EMPLOYEECO TRANSACTION

2.1 Introduction and rationale
The Company is well diversified and mature in the industries in which it operates. Innovation and investment in technology and a deep understanding of our clients’ business requirements facilitates the continued provision of cost effective and appropriate logistics services. The Company’s current low gearing and access to funding positions it favourably to grow during the current challenging economic environment. The next step in achieving the Company’s business and growth aspirations is the empowerment of employees through sharing in the economic value created by the Company. The employee share participation transaction detailed in this announcement aims to achieve this objective. The Board is of the opinion that the employee share ownership plan will:
  • offer a realistic opportunity to create substantial value for the employees of Cargo Carriers;
  • foster an ownership culture which is expected to enhance the commitment of employees to Cargo Carriers and keep them focused on achieving the Group’s growth targets; and align the interests of employees with those of the shareholders of Cargo Carriers.
2.2 Terms of the Agreement
Cargo Carriers and EmployeeCo have entered into a reciprocal subscription agreement (“EmployeeCo Reciprocal Subscription Agreement”) in terms of which EmployeeCo will subscribe for 1 052 632 ordinary shares in Cargo Carriers (“EmployeeCo Cargo Subscription Shares”) at a price of R11.63 per share (“EmployeeCo Cargo Subscription Price”), being an aggregate amount of R12 246 594 (“EmployeeCo Specific Issue”). To enable EmployeeCo to fund its acquisition of the EmployeeCo Cargo Subscription Shares, in terms of the EmployeeCo Reciprocal Subscription Agreement, Cargo Carriers will subscribe for 100 non-convertible, cumulative, redeemable, participating preference shares (“EmployeeCo Preference Subscription Shares”) and 1 000 “B” ordinary shares in EmployeeCo (“EmployeeCo “B” Subscription Shares) for an aggregate amount of R12 246 594 (“EmployeeCo Subscription Price”), subject to the suspensive conditions set out in paragraph 2.4 below. Upon the implementation of the transaction, the EmployeeCo Cargo Subscription Shares will be listed on the Johannesburg Stock Exchange (“JSE”), will rank pari passu in all respects with the existing Cargo Carriers ordinary shares in issue and will constitute 5% of all the issued ordinary shares in Cargo Carriers. In terms of the JSE Listings Requirements, the EmployeeCo Specific Issue is an issue of shares for cash at a 16% discount to the 30 day VWAP as at 8 March 2016, being the signature date of the EmployeeCo Reciprocal Subscription Agreement. As the EmployeeCo Cargo Subscription Shares, which are the subject of the EmployeeCo Specific Issue, are subject to certain restrictions, they are deemed to be issued to ‘non-public’ shareholders.

2.3 Effective Date
The effective date of the EmployeeCo Transaction shall be the first business day following the day on which the suspensive conditions set out in paragraph 2.4 below have been fulfilled or waived (“Effective Date”).

2.4 Suspensive conditions to the EmployeeCo Reciprocal Subscription Agreement
The EmployeeCo Reciprocal Subscription Agreement is subject to the fulfilment or waiver on or before 30 June 2016 of the following suspensive conditions:
  • the adoption by way of a special resolution by the shareholders of EmployeeCo, and filing at the Companies and Intellectual Property Commission, of the EmployeeCo memorandum of incorporation (“EmployeeCo MOI”);
  • the Board and Cargo Carriers shareholders passing the resolutions required to approve the EmployeeCo Specific Issue and the resolutions required in terms of sections 44 and/or 45 of the Companies Act to approve any financial assistance which may be provided by Cargo Carriers to EmployeeCo in connection with the EmployeeCo Specific Issue; and
  • the conclusion and implementation of individual subscription agreements between EmployeeCo, on the one hand and EmployeeCo Participants, on the other hand as contemplated in paragraph 2.6 below ("the EmployeeCo Ordinary Shares Subscription Agreements").
2.5 Financing of the EmployeeCo Specific Issue
In terms of the EmployeeCo Reciprocal Subscription Agreement, Cargo Carriers has agreed, subject to the fulfilment or waiver of the suspensive conditions set out in paragraph 2.4 above, to provide financial assistance to fund the EmployeeCo Specific Issue, as follows:
  • Cargo Carriers has undertaken to subscribe for the EmployeeCo Preference Subscription Shares and to subscribe for the EmployeeCo “B” Subscription Shares on the Effective Date for the EmployeeCo Subscription Price;
  • On the Effective Date, the obligation of Cargo Carriers in respect of payment of the EmployeeCo Subscription Price shall be settled by setting the amount off in the books of account of EmployeeCo against EmployeeCo’s obligation in respect of the EmployeeCo Cargo Subscription Price;
  • The EmployeeCo Preference Shares will have certain preferential rights, including the right to a cumulative preference dividend calculated with reference to the distributions received by EmployeeCo from Cargo Carriers during each dividend period less any operating costs, limited to administrative costs, of EmployeeCo during the relevant dividend period, which dividend shall reduce on a sliding scale over a five year period;
  • EmployeeCo shall be entitled, but not obliged, to redeem the EmployeeCo Preference Subscription Shares at any time after payment in full of any accrued dividends, subject to compliance with the Companies Act, 2008 and provided that it passes the solvency and liquidity test in section 4 of the Companies Act, 2008; and
  • After a period of five years from the Effective Date, Cargo Carriers shall be entitled to require EmployeeCo to redeem the EmployeeCo Preference Subscription Shares.
2.6 EmployeeCo Ordinary Shares Subscription
In terms of the EmployeeCo Ordinary Shares Subscription Agreements, EmployeeCo Participants shall initially, in aggregate, subscribe for approximately 100 000 "A" ordinary shares with no par value in EmployeeCo for a subscription price of R0.01 per share (“EmployeeCo “A” Ordinary Shares”), which "A" ordinary shares will have the same voting rights and rights to dividends as the EmployeeCo "B" Subscription Shares, but will be subject to different transfer restrictions, as set out below:
  • EmployeeCo Participants will not be able to dispose of or otherwise deal with their EmployeeCo “A” Ordinary Shares during the first 60 months from the date of issue. Thereafter they will be entitled, over a 36-month period and in tranches of up to one third in each of the 12 months within the 36-month period, to, inter alia, put their EmployeeCo “A” Ordinary Shares to EmployeeCo. The purchase consideration payable by EmployeeCo for any EmployeeCo “A” Ordinary Shares put to it, shall be settled by the transfer by EmployeeCo of a portion of the EmployeeCo Cargo Subscription Shares to the EmployeeCo Participant exercising the put option in accordance with a pre-determined valuation model, as detailed in the EmployeeCo MOI.
  • the EmployeeCo "B" shareholder may at any time sell any “B” Subscription Shares, but only to a then current employee of Cargo Carriers or to a trust or other entity nominated to hold such shares or interest on behalf of any number of employees of Cargo Carriers; and
  • EmployeeCo Participants may not sell any of their EmployeeCo "A" Ordinary Shares to third parties unless such sale and third party is approved by the board of directors of EmployeeCo and the "B" shareholder.

3. FINANCIAL INFORMATION

The table below sets out the pro forma financial effects of the EmployeeCo Transaction on Cargo Carriers’ basic earnings per share, diluted earnings per share, headline earnings per share, diluted headline earnings per share, net asset value per share and tangible net asset value per share. The pro forma financial effects have been prepared to illustrate the impact of the EmployeeCo Transaction on the published unaudited financial information of Cargo Carriers for the six months ended 31 August 2015, had the EmployeeCo Transaction occurred on 1 March 2015 for statement of comprehensive income purposes and on 31 August 2015 for statement of financial position purposes. The pro forma financial effects have been prepared using accounting policies that comply with IFRS and that are consistent with those applied in the unaudited results of Cargo Carriers for the six months ended 31 August 2015. The pro forma financial effects, which are the responsibility of the directors, are provided for illustrative purposes only and, because of their pro forma nature may not fairly present Cargo Carriers’ financial position, changes in equity, results of operations or cash flow nor the effect and impact of the EmployeeCo Transaction going forward.
Before1 EmployeeCo Transactions Pro forma after EmployeeCo Transaction
Basic earnings per share (cents) 1.09 (0.07) 1.02
Diluted basic earnings per share (cents) 1.09 (0.07) 1.02
Headline earnings per share (cents) 0.93 (0.07) 0.86
Diluted headline earnings per share (cents) 0.93 (0.07) 0.86
Net asset value per share (cents) 2 356.23 (5.48) 2 350.75
Tangible net asset value per share (cents) 2 356.23 (5.48) 2 350.75
Weighted and diluted average number of shares at 31 August 2015 19 406 290 - 19 406 290
Shares in issue at 31 August 2015 20 000 000 - 21 052 632

Notes:
  1. The “Before” column is based on the published unaudited financial information of Cargo Carriers for the six months ended 31 August 2015, as released on SENS on 27 October 2015 (before the transaction).
  2. The weighted and diluted average number of shares at 31 August 2015 excludes the 593 710 treasury shares held by the share incentive trust.
  3. The “EmployeeCo Transaction” column relates to the following:
    • EmployeeCo will be required to be consolidated by Cargo Carriers in terms of IFRS 10, Consolidated Financial Statements and the EmployeeCo Cargo Subscription Shares held by EmployeeCo will be classified as treasury shares for accounting purposes and consequently no effect is reflected for the accrual of preference dividends between Cargo Carriers and EmployeeCo.
  4. Estimated transaction costs of R1 063 405 have been expensed on the Employee Transaction. These costs are once-off and have been assumed to be non-tax deductible.
  5. IFRS 2 costs amounting to R283 104 have been expensed in respect of the EmployeeCo Transaction and are assumed to be non-tax deductible.
  6. Finance income reduction of R27 383 due to the reduction in cash balances as a result of the transaction costs, was calculated at 5.15% being the yearly average money market rate. This reduction will have a continuing impact and is considered to reduce taxable income.

4. JSE LISTINGS REQUIREMENTS AND RELATED PARTY IMPLICATIONS

In accordance with paragraph 5.51(f) of the Listings Requirements, if a specific issue of shares for cash is to a related party and is at a discount to the 30-day VWAP prior to the date the issue is agreed, the board is required to obtain a fairness opinion from an independent expert confirming whether the issue is fair insofar as the shareholders of the issuer are concerned. As one of the executive directors of Cargo Carriers will be an EmployeeCo Participant and the EmployeeCo Specific Issue is at a 16% discount to the VWAP as at 8 March 2016, the JSE, on a seethrough basis, deems the EmployeeCo Specific Issue to be a specific issue of shares for cash to a related party at a discount to the 30-day VWAP. Cargo Carriers is accordingly required to obtain a fairness opinion on the EmployeeCo Specific Issue. A copy of the fairness opinion will be included in the circular to shareholders referred to in paragraph 5 below.

5. CIRCULAR AND GENERAL MEETING

A circular containing full details of the proposed EmployeeCo Transaction and incorporating a notice of general meeting is expected to be posted to shareholders in due course.

Johannesburg
10 March 2016


Sponsor: Arbor Capital Sponsors Proprietary Limited
Transaction Advisor: Nodus Capital Proprietary Limited
Legal Advisor: Webber Wentzel Attorneys
Independent Reporting Accountant: Ernst & Young Inc.
Independent Expert: Merchantec Proprietary Limited